China Caixin service PMI falls to 21-month low

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Business activity in China's services sector grew at its slowest pace in 21 months in September as the pace of new business cooled, a private survey showed.

The Caixin General Services Purchasing Managers Index (PMI) slipped to 50.6 in September from a three-month high of 52.7 in August, the lowest reading since December 2015 and one of the weakest since the survey began in 2005.

A reading above 50 indicates expansion while below 50 shows contraction in the results of the survey, conducted by financial information service provider Markit and sponsored by Caixin Media Co. Ltd.

New business in September grew at a slower pace than in the previous month but was still relatively solid with a reading a 52.0, while backlogs of work declined for the first time in five months and hiring slowed.

The service sector – which includes finance, real estate services and marketing, transport and retail – has become an increasingly important part of the Chinese economy, as the country tries to shift the economy towards a growth model that draws strength from consumption, services, and innovation and to reduce the economy's traditional reliance on heavy industry and investment.

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The sector accounted for more than half of the Chinese economy last year.

The survey was in sharp contrast to an official gauge of the non-manufacturing sector that showed the services sector expanded at the fastest clip since 2014 in September, blurring the picture on how a key part of the economy is performing.

The difference between the readings of the Caixin indices and official PMI released by the National Bureau of Statistics is partly due to the types of companies included in the surveys.

The official survey samples 4,000 relatively large non-manufacturing companies, while the Caixin survey has a smaller sample size of around 400 companies and mainly focuses on small and medium-sized firms.

The survey also showed the services sector continued to see much less inflation than the manufacturing industry, in line with the view that price pressures in China are concentrated in upstream raw materials industries and are not yet percolating through to the consumer level.

The Caixin General Services Purchasing Managers Index (PHI) slipped to 50.6 in September from a three-month high of 52.7 in August, the lowest reading since December 2015 and one of the weakest since the survey began in 2005. /Caixin.com Photo

A separate Caixin/Markit survey last week also showed growth in the manufacturing sector slowed in September, but factory activity still grew faster than services.

"The Chinese economy generally held up well in the third quarter," Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in a note accompanying the data release.

"However, the expansion in both manufacturing and services cooled in September, suggesting downward pressure on economic growth may re-emerge in the fourth quarter."

China's central bank said on Sept. 30 it cut the amount of cash that some banks must hold as reserves for the first time since February 2016 in a bid to encourage more lending to smaller firms and energize the private sector.

Economic data to be released over the next few weeks is expected to show economic growth remains robust and resilient despite the tighter monetary policy, welcome news for leadership ahead of a twice-a-decade National Congress of the Communist Party of China that kicks off on Oct. 18.

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Source(s): Reuters ,Xinhua News Agency